Direct indexing stock portfolios and tax-loss harvesting (TLH)

The Schwab minimum for this is $100k. The Fidelity minimum is $4k.

According to their webpage, the Fidelity tax loss harvesting, net of fees and taxes, on average, going back more than a decade, gets you 100 basis points (1%) added performance on top of the S&P500. That’s nothing to sneer at. But 2022 was not an average year…

I had an exchange today on Reddit with a Fidelity Direct Indexing user… they said in 2022 the managed FidFolio TLH got them a 14% return, in a year when US Large Caps were down 18% (so in the end, I presume they only had a 4% loss). That’s damned impressive turning lemons into some kind of juice drink.

The point of DI TLH is that even when an index is going up, there are stocks that are getting taken out in back and shot in the back of the head. Example… the Deepwater Horizon disaster, April 2010. BP stock lost HALF of its value over that Spring and Summer. It would have been so easy for an algo to harvest that juicy loss and replace BP with ExxonMobil or Chevron. There are always losses to be harvested, and other equivalent players to put in their places.

Yes, 0.40% annual fee is not trivial, but net of fees and taxes it looks solid.At least you’re paying to have them do actual work for you, which is way more than the 1% wrap fee usually gets you, which is precisely nothing.

Very good podcast on this at Schwab, but their minimum is too high!

Link to a recent article by Allan Roth, a Certified Financial Planner who compares direct indexing to ETFs. and explains the reasons for his conclusion that for most individuals "direct indexing is good. It’s just generally not as good as owning broad ETFs. "
Side note: I periodically do tax loss harvesting in the index funds in my taxable account.